What is a CVA?
The CVA process allows a viable but insolvent company to propose a formal repayment arrangement with its creditors while continuing to trade.
A Company Voluntary Arrangement is a formal insolvency procedure involving the company’s directors, a licensed insolvency practitioner, shareholders and creditors.
If approved, the directors normally remain in control of the company while the insolvency practitioner supervises the arrangement.
💡 Quick Answer
The CVA process begins by assessing whether the business is viable and whether it can realistically afford an arrangement with its creditors.
A licensed insolvency practitioner then helps prepare a formal proposal setting out how creditors will be treated and what the company can afford to pay.
At least 75% by value of creditors who vote must support the proposal, subject to additional protections for unconnected creditors.
If approved, the directors usually continue running the company while the insolvency practitioner supervises the arrangement.
What is the CVA Process?
It normally involves:
- assessing whether the company is viable;
- appointing an insolvency practitioner;
- preparing the CVA proposal;
- allowing shareholders and creditors to consider it;
- creditors voting on the proposal;
- implementing the arrangement if approved; and
- making the agreed payments until completion.
The purpose is usually to rescue the company rather than close it.
For a broader explanation of suitability, see our Company Voluntary Arrangement guide.
Step 1: Assess Whether the Business Is Viable
The first stage is to determine whether a CVA is realistic.
A CVA is generally intended for a company that is insolvent or under serious financial pressure but whose underlying business still has a viable future.
The review will usually consider:
- current debts and creditor pressure;
- trading performance;
- future cash flow;
- assets and liabilities;
- ongoing tax liabilities;
- employees and payroll costs; and
- what the company could realistically afford to contribute.
This stage matters because a CVA will not fix a business that continues to make unsustainable losses.
Step 2: Appoint an Insolvency Practitioner
If a CVA appears suitable, the directors appoint a licensed insolvency practitioner.
The insolvency practitioner initially acts as the nominee.
They work with the directors to assess the company’s position and prepare the formal proposal.
The proposal must be based on realistic financial information and have a reasonable prospect of being implemented successfully.
Step 3: Prepare the CVA Proposal
The proposal sets out how the arrangement will work.
It will normally include information about:
- the company’s assets and liabilities;
- creditor claims;
- financial forecasts;
- proposed payments;
- the expected duration;
- how creditors will be treated; and
- what happens if the company breaches the arrangement.
The figures need to be affordable.
A company must still be able to pay its new trading liabilities while making its CVA contributions.
Step 4: Creditors and Shareholders Consider the Proposal
The proposal is then put forward for formal consideration.
Creditors are given the opportunity to review the company’s financial position and decide whether the CVA offers them an acceptable outcome.
They may consider:
- how much they are expected to receive;
- whether the forecasts are realistic;
- how their claim will be treated; and
- what they might receive if the company entered liquidation instead.
Creditors do not necessarily have to attend a traditional physical meeting. A formal creditor decision procedure can be used.
Step 5: Creditors Vote on the CVA
For the proposal to be approved, at least 75% by value of the creditors who vote must support it.
That does not mean 75% of every creditor must vote in favour.
There is also an additional safeguard relating to creditors who are not connected with the company.
If the required thresholds are achieved, the CVA can become binding on creditors covered by the arrangement, including some creditors who voted against it.
If HMRC represents a significant proportion of the company’s debt, its vote can be particularly important. Our guide to CVA proposals involving HMRC debt explains what HMRC is likely to consider before supporting an arrangement.
Step 6: The CVA Takes Effect
Once approved, the insolvency practitioner normally becomes the supervisor of the arrangement.
The directors usually continue managing the company.
The supervisor’s role is to oversee the CVA and ensure the company complies with its terms.
This is one of the main differences between a CVA and administration, where an administrator takes control of the company.
Step 7: The Company Makes the Agreed Payments
The company then makes the agreed contributions in accordance with the proposal.
At the same time, it must continue paying new liabilities such as:
- wages;
- suppliers;
- rent;
- VAT;
- PAYE; and
- Corporation Tax.
This is why affordability is so important.
A CVA should not simply replace historic debt with a repayment level that leaves the company unable to meet its normal running costs.
For more on timescales, see How Long Does a Company Voluntary Arrangement Last?.
What Happens to Employees During a CVA?
Employees normally remain employed if the company continues trading.
A CVA does not automatically terminate employment contracts.
However, the company may still need to restructure as part of its recovery plan.
That could involve:
- reducing costs;
- changing roles;
- closing sites; or
- making redundancies.
What happens to employees therefore depends on the company’s wider rescue strategy.
Step 8: The CVA Is Monitored
During the arrangement, the supervisor monitors the company’s compliance.
Directors may need to provide financial information and demonstrate that the company is continuing to meet both its CVA obligations and normal trading liabilities.
If the business starts to struggle, directors should deal with the problem early rather than allowing missed payments to build up.
Step 9: The CVA Is Completed
If the company meets the obligations set out in the arrangement, the CVA can be formally completed.
The supervisor then deals with the final reporting and completion process.
The company can continue trading after the CVA has finished.
If the company cannot maintain the arrangement, the outcome depends on its terms and circumstances. A variation may sometimes be possible, while in other cases administration or liquidation may need to be considered.
How Long Does the CVA Process Take?
There is no fixed timeframe for setting up a CVA.
The preparation stage depends on:
- how complex the company’s finances are;
- how quickly accurate records are available;
- the number of creditors;
- negotiations over the proposal; and
- the quality of the financial forecasts.
The time required to set up the CVA is separate from the duration of the approved arrangement itself.
Is a CVA Right for My Company?
A CVA may be worth considering where:
- the underlying business is viable;
- directors want the company to continue trading;
- historic debts are creating serious pressure;
- future cash flow can support affordable repayments; and
- creditors may receive a better outcome than they would in liquidation.
If the business is no longer viable, another insolvency procedure may be more appropriate.
Considering a Company Voluntary Arrangement?
If your company is struggling with creditor pressure but the underlying business remains viable, getting advice early can give you more options.
Business Helpline provides free, confidential and unbiased initial advice to limited company directors.
We can help you understand:
- whether a CVA appears realistic;
- what the process involves;
- what information will be required;
- how creditors may respond;
- whether repayments appear sustainable; and
- whether administration or liquidation should also be considered.
Call our free 24-hour helpline on 0800 088 2142 or request a confidential call back.
Frequently Asked Questions About the CVA Process
Who starts the CVA process?
In most cases, the company’s directors decide to explore a CVA and appoint an insolvency practitioner to advise and prepare the proposal.
Does every creditor have to agree?
No. At least 75% by value of creditors who vote must approve the proposal, subject to additional protections for unconnected creditors.
Do directors lose control?
Usually not. Directors normally remain in control of the company while the insolvency practitioner supervises the CVA.
Can the company keep trading?
Yes. Continued trading is usually one of the main purposes of a CVA.
What happens if creditors reject the proposal?
The CVA cannot proceed on those terms. Directors may need to revise the proposal or consider alternatives such as administration or liquidation.
What happens if the CVA fails?
The outcome depends on the terms of the arrangement. The company may need a variation, administration or liquidation if it can no longer comply.
